AUDIT WORKING PAPERS

REVIEW TECHNIQUES
To enable the participants to conduct review of audit working papers files in
order to ensure that the sufficient appropriate audit evidence has been
obtained to support the conclusion reached, and that the work delegated by the
audit partner has been properly completed with economy, efficiency and
effectiveness.
WHY DO WE AUDIT
FINANCIAL
STATEMENTS……..?
 WHY DO WE AUDIT FINANCIAL STATEMENT- NEED FOR
AUDIT
Principle provides capital
and hires manager
to manage it.

Information asymmetry
Principle and conflict of interest Directors
(Shareholders) lead
to information risk for the
principle
Director is accountable to Principle;
provides financial reports.

Auditor gathers Directors hires audit to

evidence to evaluate report on the fairness of
fairness of manager manager financial
financial statements. statements. Risk
information asymmetry
of principle reduce.
Auditor
OBJECTIVE OF
AUDIT
To express an opinion on the financial statements,
whether or not the financial statements present
fairly.
PURPOSE OF
REVIEW
• ISA 200 “Objectives and General Principles Governing an Audit of Financial
Statements” states the objectives of an audit of financial statements as “To
enable the auditor to express an opinion on the financial statements…”

• ISA 500 “Audit Evidence” requires that the auditor should obtain sufficient
appropriate audit evidence to be able to draw reasonable conclusion on
which to base the audit opinion.
THINGS TO DO AT
REVIEW
• The work has been performed in accordance with professional standards
and
regulatory and legal requirements and the agreed / standard scope.
• Appropriate consultations have taken place and resulting conclusion
the been documented and implemented. has

• The evidence obtained is sufficient and appropriate to support the

auditor’s report.
THINGS TO DO AT
REVIEW
• All standard procedures have been performed and documented before
the
issuance of the auditor’s report.
• The work performed supports the conclusions reached.
• There is no need to revise the nature, timing and extent of work
performed – and if there is; necessary changes are made
accordingly.
WHEN REVIEW IS
CONDUCTED…..?
• There is a misconception that review can only be performed at the end
of audit or at the culmination of audit.
• Review is an on going process and should be done throughout the
audit during the following phases:
• Planning
• Testing of controls / Compliance testing
• Substantive testing
• Conclusion and reporting
HOW MUCH TO
REVIEW…?

EXTENT OF REVIEW
/ DEPTH REQUIRED!
Depth of Review (Time
Required) vs. Level of Staff
HOW TO CONDUCT
REVIEW…?

11
REVIEW OF FINANCIAL
STATEMENTS
RESPONSIBILITY FOR REVIEW OF FINANCIAL
STATEMENTS
• The management of the Company is responsible for the preparation of
financial statements.
• However, since the auditor has to report on the same, he still has to
perform a detailed review of the same.
RESPONSIBILITY FOR REVIEW OF FINANCIAL
STATEMENTS
• Auditor should ensure that:
• the financial statements comply with the applicable financial reporting
framework;
• these are comparable within industry;
•• all the relevant
financial disclosures
statements have beenwith
are in accordance adequately
books ofmade and
account drafted; law
– company
the format; report
• financial statements are free from errors,
including
clerical and arithmetical errors.
REVIEW FINANCIAL STATEMENTS’
COMPLIANCE
• Ensure that the Companies Ordinance 1984 and International Financial
Reporting Standards’ requirements and disclosures have been complied
with. (Preferably use Financial Statements Disclosures Checklist)

• Ensure that if the company is subject to any other ordinance or regulations,

disclosures required by these have also been included in the financial
statements e.g. companies including Societies, NGOs etc..
 USE OF DISCLOSURE
CHECKLISTS
• Preferably there should be disclosure checklists for the same like:
• Financial Statements Disclosure Checklist,
• Companies Ordinance 5th Schedule Disclosure Checklists
• IFRS / AFRS Disclosure Checklists etc.
• Don’t leave it on your staff – ask them to fill, but always review by yourself
or some senior person (manager, supervisor)
• Ask your staff to refer it with the financial statements set. It will be helpful in
review
PURPOSE OF FINANCIAL
STATEMENTS
• Financial statements are:
“Structured representation of the financial position and financial performance of
an
entity.”

• Objective:
To provide information about:
• the financial position,
• financial performance, and
• cash flows
of an entity that is useful to a wide range of users in making
economic decisions.
COMPONENTS OF FINANCIAL
STATEMENTS
• General purpose financial statements comprise
of:
• Balance Sheet
• Profit and loss account
• Statement of changes in equity
• Cash flow statement
• Notes to the financial statements
PRESENTATION OF FINANCIAL
STATEMENTS
• Variation in presentation may arise from difference in:

• Nature of business of the entity

• Type of Company (private limited, AOP, MSE, SSE etc.)
• Consolidated or unconsolidated accounts
• Management judgement on matters not specified by statute /
standards
PRESENTATION OF FINANCIAL
STATEMENTS
• Identification of each f/s component
• Name of reporting entity
• Specified if accounts related to group entity
• Balance sheet date/period of account
• Presentation currency
• Level of rounding used in presenting amounts
• Comparatives
• F/s amounts supported by adequate notes
• Each F/s component signed by director and chief
executive.
BASIC ACCOUNTING
PRINCIPLES
• Fair presentation and compliance with IFRS / IAS / AFRS
• Going Concern
• Accrual basis of accounting
• Cash basis of accounting in case of Receipt and Payment
Account
• Consistency of presentation
• Materiality and aggregation
• Off setting
• Comparative information
REVIEW OF CASH FLOW
PRESENTATION
• Please review sample cash flow statements
• Cash flows may be prepared under the indirect or direct method.
• These methods affect the method of arriving at operating cash flows
only
• Discussion will follow the line items of the sample cash flow:
• from operating activities
• from investing activities
• from financing activities
• cash& equivalents

• Cash flows are prepared in accordance with the requirements of IAS 7

REVIEW OF STATEMENT OF CHANGES IN
EQUITY
• Please review sample statements of changes in
equity

• Statement may either show:

• All changes in equity
• Changes other than transactions with equity holders
VARIATIONS FOR
INDUSTRIES
• Variations can be seen in presentation & disclosures of f/s for
different
industries, e.g:
• Manufacturing companies
• Service industry
• Trading entities
• Media companies
• Section 42 Companies
• INGOs / NGOs
• Societies
FINANCIAL STATEMENTS’ REFERENCE
WITH WORKING PAPERS
• Always check that there is a complete referenced set of financial statements
available in file, which is referenced and linked with both the working papers
and final adjusted trial balance along with additional internal referencing.
• Check that such set is appropriately casted and referenced.
• Recheck referencing and recheck casting on a test basis – if you are not
doing that it means that your reputation is in the hand of some inexperienced
guys.
FINANCIAL STATEMENTS’ REFERENCE
WITH WORKING PAPERS
• Ensure that financial statements comprise of a
complete set of statements as
prescribed by IFRS, or by relevant statute.
• Ensure that proper notes to the financial statements have been provided.
• Ensure that correct period covered by the accounts appear on:
• the balance sheet,
• profit and loss account,
• statement of changes in equity,
• cash flow statement, and
• notes to the financial statements
FINANCIAL STATEMENTS’ REFERENCE
WITH WORKING PAPERS
• Check cross referencing of the major figures to working paper file
• Don’t forget the small ones altogether – otherwise, your staff will
always forget them
• Check them on a test basis also.
INTERNAL CROSS REFERENCING OF FINANCIAL
STATEMENTS
• Check internal cross reference between various figures in financial
statements
i.e. between various statements and notes.
• Examples include:
• Number of shares in notes, face of BS and as appearing in EPS disclosure;
• Cash and cash equivalents in notes, BS and CF;
• Reserves and Unappropriated / accumulated balance of profit / loss
between BS and SCE;
• Profit before tax in PL and CF;
• Depreciation in CF and notes.
COMPARATIVE FIGURES
REVIEW
• Ensure that last years’ figures appearing in the financial statements
are
traced by the staff from last years’ signed financial statements.
• Check on a test basis, particularly to identify instances where they
have been rearranged to ensure proper treatment and disclosure.
• Ensure that wherever last years’ figures have been rearranged, the
following have been disclosed in the notes to the financial
statements :
• Nature
• Amount
• Reason
REVIEW OF NOTES TO FINANCIAL
STATEMENTS
• Ensure that accounting policies for all major areas are
• defined.
Specifically check the notes and disclosures technical expertise
requiring judgment capability for and
appropriate disclosures.
• Examples include the notes relating to financial
instruments – as to whether an item is
financial instrument or not e.g.
- deferred tax,
- prepayments and
- intangible assets
• Similarly, check the notes requiring complex computations e.g. EPS and
income tax
reconciliation.
REVIEW OF NOTES TO FINANCIAL
STATEMENTS
• Match financial instruments disclosures with each other, and with
notes, and get them referred with working papers. relevant

• Check non-monetary disclosures and ensure that these are referred

with the working papers.

⚫ Check related party and other related disclosures e.g. remuneration of

key executives and refer with working papers.

⚫ Check for post balance sheet date events and similar

other disclosures. There should be proper documentation in the file.
WORKING PAPERS
REVIEW
DOCUMENTATION OF
WORK
In audit – you can never prove anything to have
been done unless you document it…

How to document – attach supports, use work

programs and then sign them off, write work
done and tick marks etc.

IF IT IS NOT DOCUMENTED; IT
IS NOT DONE!
IMPORTANCE OF WORKING
PAPERS
• Document the planning, performance and review of audit work
• Provide the principal support for audit communications
like … .
• Observations,
• Conclusions, and
• Final report

• Facilitate third party reviews and re-performance requirements

• Provide a basis for evaluating the audit activity’s quality
control
CHARACTERISTICS OF WORKING
PAPERS
• Complete
• Timely
• Accurate
• Organize
d

• Relevant
• Concise
ELEMENTS OF WORKING PAPER
• Name of the Client
• Period Covered by the Audit
• Subject Matter
• Indexing / File Reference
• Initials (signatures of staff who prepared)
• Date when prepared
• Initials (Signature of staff who reviewed)
• Date when reviewed
• In case of working paper prepared by client staff
• Date the working papers were received
• Initials of the audit team member who carried out the audit
work
CATEGORIES OF WORKING PAPER
REVIEW
• Working papers review can be categorized into
following:
• Detailed Review;
• Review by Partner;
• Tax Review;
• Specialist Review; and
• Independent Quality Review;
• There should be two objectives of review:
• Quality of work, and
• Quality of papers.
DETAILED
REVIEW
•The engagement manager / supervisor of the team should perform
audit detailed review of the working papers. a
• Review the audit strategy document and ensure
that:
• planning materiality has been set using an appropriate basis;
• all significant accounts being identified;
• tests of controls have been properly designed;
• substantive Procedures have bee appropriately planned
and
performed
DETAILED
REVIEW
• Review tax planning and review memorandum and discuss the issues with
the tax personnel (where applicable);

• Review the minutes of AGM, EGM, BOD meetings or extracts;

• Ensure that related party transaction checklist has been completed;
• Ensure that the final trial balance has been referenced with the working
papers / financial statements after duly ensuring that balances as per
the books of account accord with the same;

• Review the letters from lawyers and other consultants with whom
management consulted with respect to claims and/or potential claims;
DETAILED
REVIEW
• Review the reports from other specialists actuaries, valuers etc.) on which we are
relying;

• Ensure that letter of representation is correctly dated and contains confirmation

of all key representations made to auditors;

• Ensure that appropriate audit work has been performed in accordance with
International Auditing Standards – and the additional scope requirements of
the company law and other laws are covered;

• Ensure that sufficient additional working papers exists to be satisfied that

appropriate audit recognition has been given to all important
amounts in the financial statements
DETAILED
REVIEW
• Ensure that that the work performed has been properly evidenced;

• Ensure that numbers in the financial statements accord with

our
understanding of the client’s business and industry;

• Ensure that audit issue memoranda covers all important accounting

and
auditing issues which arose during the audit;

• Ensure that the audit team and reviewers’ concurrence with the
conclusions reached is adequately documented;
DETAILED
REVIEW
• Ensure that audit file contains adequate notes of discussions with the
client, including the reasons for all decisions reached as a result of such
discussions;

• Ensure that financial statements have been properly prepared in

accordance with the relevant accounting standards and laws and that the
audit report is appropriate; and

• Ensure that all matters of attention have been communicated to other

members of the engagement team, as appropriate.
A FEW THINGS TO REMEMBER IN DETAILED
REVIEW
• Never rely blindly…
• Use judgmental sampling for review
• Never ignore all the small things…… … . Take sample
• If something is small, but may be exposed………check it judgmentally
(e.g. legal expenses, related party transaction, other income etc.)
• Learn from experience…
• Where this client makes errors,
• Where my staff makes errors,
• Where do I commit mistakes,
• Everything can contain error, unless otherwise provided
REVIEW BY
PARTNER
• Position yourself properly… Assess your staff level… Assess the level of
reviewer and then decide to step into the foot of the Partner or the Detailed
Reviewer….

• If YES … Continue … If NO … . Go back and perform detailed review

first
… Then do it additionally… .
REVIEW BY
PARTNER
• See the “big picture.”
• Have an expectation before you review.
• Make sure all pieces fit together.
• Look for consistency with other areas you
reviewed.

• Watch the level of detail — too much or too little.

 REVIEW BY
PARTNER
Reassess Challenges
⚫ Yourself
⚫ Scope
⚫ Your team
⚫ Testing procedure
⚫ Sample size ⚫ Your client

⚫ Sample selection ⚫ The financial results

method ⚫ Client’s verbal

⚫ Materiality representations
⚫ Work Programs
REVIEW BY
PARTNER
Ask yourself…..
• In respect of each working paper under your review …
• Does it make sense..?
• Do I really understand the process..?
• Can I reiterate it…?
• Is the working paper authentic…?
• Who provided what we requested and were we provided with the originals of
the requested…?
• Does the work support the findings..?
• Is there any indication of fraud..?
• Does the working paper use language that conveys assurance on work
performed..?
• Can a third party re-perform the test and produce the same result…?
• What is the source of information provided … ?
• Is the population complete and accurate…?
REVIEW BY
PARTNER
Minimum the engagement partner should do….
• Participate in the planning event to review the audit approach of the team;
• Ensure that planning materiality has been set using an appropriate basis;
• Ensure that all significant accounts and functions have been adequately identified;
• Ensure that audit strategy / planning documentation has been prepared that
addresses
all the audit risks;

• Ensure that TOCs has been properly designed their conclusionhas been
adequately taken in to account for determination of audit strategy;
REVIEW BY
PARTNER
Minimum the engagement partner should do….
• Review the detailed audit programs including the budgeted time allocated
to each audit procedure;

• Review sufficient audit working papers to ensure appropriate audit

coverage has
been done for all important financial statements amounts and disclosures;

• Ensure that adequate audit work has been performed in accordance with
ISAs,
and that it has been properly evidenced;

• Ensure that detailed review was adequate

REVIEW BY
PARTNER
Minimum the engagement partner should do….
• Review the numbers in the financial statements and ensure that they accord with
the understanding of the client’s business and
industry and economy as a within;

• Audit Issues Memoranda covers all important accounting and auditing issues
which
arose during the audit and concur with the conclusions reached;

• Ensure that the audit file contains adequate notes of discussions with the
client,
including the reasons for all decisions reached as a result of such discussions;

• Ensure that letter of representation is correctly dated and contains confirmation of

REVIEW BY
PARTNER
Minimum the engagement partner should do….
• Evaluate, based on your experience and judgment capability as to whether
the
accounting policies, significant judgments and estimates are:
• appropriate,
• acceptable, and
• as per industry norms;
• Ensure that going concern basis is appropriate
• Ensure that subsequent events, if any, have been properly disclosed/ accounted for.
SPECIALIST
REVIEW
• There are always a few items in an audit which need specialist review. But
might at
times, we have to rely on the external specialists,
• Examples include:
• Property Valuations
• Tax – tax, deferred tax and tax position;
• Actuary – Insurance and defined benefit plans.
• Legal opinions – Property titles, positions,
• Treasury – financial institutions’ treasury
function
• IT – IS audit functions;
• Islamic finance – Islamic finance
transactions;
QUALITY
REVIEW
• Quality review normally refers to a review of audit documentation in order to get a
concurrent conclusion by an independent person that appropriate audit opinion has
been expressed on the financial statements.

• Normally this is conducted by a partner other than the engagement partner of

the
audit.

• May also be performed by a senior expert with the practice.

QUALITY
REVIEW
Things to look for:

• Team assigned to engagement has:

• sufficient skills,
• experience, and
• training to execute the engagement
• Audit strategy document:
• has been prepared;
• Addresses all the audit risks
• General audit procedures have been
performed

• Appropriate areas are covered

QUALITY
REVIEW
Things to look for:

• Audit Issue Memoranda:

• addresses all the issues raised
• conclusions are appropriate and documented

• Letter of representation is:

• correctly dated
• contains confirmation of all key representations
made
RELIANCE ON
OTHERS….?
• Never rely on your subordinates for what you, yourself feel incompetent
or
incapable

• Try to develop expertise yourself

• Learn from them, but not put blind reliance on them
• Evaluate the arguments given
REVIEW AS A TRAINING
TOOL
• On the job training
• Operation theater approach
• Objective of internship / job
• Direct communication channels
• Share the experience
• Technical workings – direct
involvement
ZERO BASED
REVIEW
• Belief – Audit is always performed in good faith.
• Review – Should not be carried out in good faith
• Need to have audit evidence to support the audit
evidence

• Never to believe on what people say including:

• your client Always perform a Zero Based Review
• your own and colleagues
your team i.e.
thinking o Nothing can be believed, unless
evidenced
o Nothing is correct, unless proved